in volatile times
School experts share their strategic insights for managing
in todays marketplace
an organization during the best of times presents challenges
for managers, but surviving under volatile economic conditions
presents extraordinary hurdles. Nothing has arguably done
more to spur recent market volatility than technological innovation.
While some prophesied that the New Economy would scrap business-as-we-knew-it,
the reality has proven more complicated, with older economic
models continuing to rub shoulders with e-commerce innovations,
creating a complex hybrid that demands corporate leaders negotiate
between the old and new worlds.
School of Management faculty provide insights into understanding
this hybrid model and point out the hidden advantages a tough
marketplace can bring if organizations pursue the right
strategies to bolster competitive advantage. Management innovations
in areas such as information technology, marketing, supply
chains and human resources offer powerful tools to mitigate
economic crises, say Kellogg School experts. Doing the right
thing requires vision, as well as the ability to leverage
people are always your most important strategic resource,
and during difficult times their value increases, says
Kellogg School Dean Dipak C. Jain. Kelloggs collaborative
culture really prepares managers to lead internal teams and
drive a firms success.
also depends on learning from mistakes, especially since customers
form perceptions about a company not when things go right,
but when they go wrong, says Dean Jain, co-author of
the new text Marketing Moves. Often, though, the pace
of daily business doesnt afford managers the chance
to evaluate missteps closely. This is where a recession can
give companies a valuable commodity: more time for managers
to review the firms strategic focus, says Jain.
Conversely, in a boom market time is more precious since
companies must orient themselves for external action rather
© Nathan Mandell
"The smart companies...actually increase spending
in recessionary periods...They build strong brands they
capitalize on when the market inevitably picks up."
managers must reflect on the Internet crash that culminated
in the last downturn. If, as the slogan goes, the rules have
changed, they have also remained the same, demonstrating the
cyclical nature of business wisdom that periodically reinvents
itself by remembering what it thought it could afford to forget.
Rule No. 1 really goes back to Marketing 430: Ditch the herd.
away from the herd
common error managers make in a volatile market is to panic
and follow the herds direction rather than the strategies
best for their organizations. The companies that profit
most from bad times are those that dont resort to massive
layoffs and indiscriminate cost cutting, but remain disciplined
in pursuing growth guided by a coherent strategy, explains
David Besanko, the Alvin J. Huss Distinguished Professor of
Management and Strategy, and Kelloggs associate dean
for academic affairs.
offer a great opportunity for companies in leadership positions
to solidify existing sources of competitive advantage and
build new ones, says Besanko, who notes that marginal
competitors often fall by the wayside and assets can be acquired
more cheaply during a downturn.
decisions made under duress, however, can be a managers
nightmare, says Keith Murnighan, the Harold H. Hines Jr. Distinguished
Professor of Risk Management. Rushing to judgement is
the last thing I would recommend, he says, citing his
research published in The Art of High Stakes Decision-Making.
often recession defined as two consecutive quarters
of negative growth brings with it austerity measures
that can impede a companys long-term success. Examples
abound. The Sept. 11 terrorist attacks exacerbated an already-listing
U.S. economy by throwing political and security challenges
on top of economic hurdles. Airlines and the travel industry
were hit especially hard, and nearly all carriers drastically
cut staff, routes and amenities. Notable exceptions include
Continental and Southwest Airlines, Besanko indicates. These
leaders looked beyond the slowdown to position themselves
advantageously once the economy picked up.
recession is a chance to get back to basics and understand
your mission, your competencies and your threats, says
Murnighan. Stressful circumstances become an opportunity to
try new strategies. He contends that smart organizations recognize
a downturn as a chance to gain market share.
|© Nathan Mandell
"During the boom there was a sense that students
were less inclined to pay attention to subjects like finance...
[Now] there's been a reengagement with academics."
Sawhney, the McCormick Tribune Professor of Electronic Commerce
and Technology, cites Dell Computer as one example of a company
leveraging its market strength to grow even during a recession.
has advertised massively, cut prices and has stolen a lot
of market share, says Sawhney, who has published widely
on the subject of e business strategy, including a text titled
The Seven Steps to Nirvana. Similarly, while
we see Kmart go out of business, we see Wal-Mart produce record
sales because, at root, they are a more efficient business,
Sawhney explains. The winners in the last recession, he says,
are those companies that leverage technological advantages
to enhance operational effectiveness.
too, is another way to make an impact when the Dow Jones goes
south if you defy the herd. Companies that cut their
advertising back to the bone when times get tough, are pursuing
the wrong strategy in most cases, says Marketing Professor
Robert Kozinets, who along with colleage Professor John Sherry
has investigated trends in retro-marketing that position the
marketer in a role Kozinets likens to a psychoanalyst
of the collective unconscious.
marketing trends after Sept. 11, Kozinets says there has been
a need in the collective American psyche to retreat into more
comfortable, safer times when the ground didnt seem
to be shifting. Thats part of marketings
job now, to jump on board this important task of cultural
reassurance, he says, citing the example of the travel
industry working with President George W. Bushs public
statements reassuring people that its safe to get back
on planes after the terrorist attacks.
in advertising isnt new, Kozinets points out, but marketing
as part of the architecture of reassurance mutually
supporting a social structure is a more recent development.
trends today are completely different than those in the high-tech
late-1990s when advertising was all about the future, insists
Kozinets. Although there was still a hunger for the
past then, it was a utopian, 1950s-style past, he explains.
Now its much more about the people and comfort
and community of the past. Lots of flags, lots of militaristic
stuff, lots of paradisiacal golden youth stuff.
he says, these are the aspects of what products must tag themselves
onto so that they appeal to the common mood of unease, especially
when larger social events combine with a recession.
smart companies are the ones that actually increase spending
in these recessionary periods, Kozinets says. Time
after time weve seen companies who consolidate their
gains while their competitors cut back build very strong brands
that they can then capitalize on when the market inevitably
points out that during a recession advertising markets sink,
so marketers can get excellent deals and more bang for
the buck since the marketplace tends to be less cluttered.
As well, this recessionary environment can create opportunities
to re-examine marketing assumptions. Its a classic
buy smarter rather than buy more strategy
that emerges during a downturn, he says. Once
you have budget cuts, everyone suddenly rediscovers basic
marketing concepts like targeting.
dot-com bust, Management and Strategy Professor Sonia Marciano
has seen evidence of the back-to-basics trend cited
by Kozinets. Students in her business strategy course have demonstrated
a renewed appreciation for textbook theory. Like many of their
peers, some of these students have switched careers and are
now bolstering their real-world lessons with a deeper understanding
of business fundamentals.
|© Nathan Mandell
"The toughness of a market environment makes a
difference in a firm's ability to take competencies
developed in their home market and extend them outside
the boom times, there was a sense that students were less
inclined to pay much attention to subjects like finance,
recalls Marciano. The attitude was you dont really
need to know this stuff to do well; you just need to get out
there and get going. After the Internet bust theres
been a reengagement with academics.
Spulber, the Elinor Hobbs Distinguished Professor of International
Business, isnt surprised by this trend. What makes
a successful manager is the ability to rise above the crowd
and gain a broader strategic perspective. Thats something
that weve always emphasized at Kellogg, says Spulber,
who is director of the Kellogg International Business and
Markets Program, which is founded on a serious interdisciplinary
approach to understanding the world economy.
havent abolished the business cycle, all the New Economy
rhetoric notwithstanding, Spulber adds.
did seem like the Internet economy would push stocks ever
higher, exuberance grew infectious, poisoning reason and expectations.
Then came the tech crash. What happened? Well, reality, say
some Kellogg professors. It turns out that even the coolest
computer software couldnt rewrite the underlying economic
is a double-edged sword, explains Sawhney, citing associated
managerial challenges. For instance, businesses dont
yet know how to manage distributed organizations or truly
create win-win relationships with partners, he says. Technology
is the solution, but its also the problem. What got
us into this recession was an abrupt slowdown in capital spending
came as a result of a startling discovery, says Professor
Shane Greenstein who studies the computer industry structure
and behavior. We saw this IT consulting industry grow
up to a very large scale to take the new technology and mediate
between where users were and where they wanted to be,
says Greenstein, the Elinor and Wendel Hobbs Distinguished
Professor of Management and Strategy. Then what happens?
It turns out IT becomes a luxury good.
|© Nathan Mandell
"Technology remains the lifeblood of competitive
advantage. It's not the guys in the dot-coms who are winning
the technology race; it is Dell and GE and Walmart."
notes that demand for technology in operational areas remained
strong; what cooled was the demand for the rate of change.
Since IT consultants billed themselves as change-management
gurus, they bore the economic brunt when companies reduced
their demand for tech services whether because these
companies represented one-time clients, dot-com firms ramping-up,
or organizations preparing for a Y2K menace that never materialized.
In the end, demand dried up and so did employment for a lot
every recession there are people who invested in a set of
skills that became obsolete, says Marciano. But
its unusual for this obsolescence to occur so soon after
the investment. The compression became so pronounced.
spurred by dynamics in the tech sector, say Greenstein and
Sawhney, is another element of the dot-com crash. While computer
processors may double their speed every 18 months, these efficiencies
require about five years to be translated into processes that
businesses find profitable.
agrees. Economic change is rarely painless, he
says. The key is for businesses to realize they cant
necessarily stick with the tried-and-true, but that they must
through tough times
companies, Kellogg experts say, are the ones adapting well,
and developing an agility that allows them to respond more
quickly to market challenges. If technology presents hurdles
for corporate leaders, it also ranks among the management
innovations that offer ways to strengthen business in good
times and bad.
chains, for instance, have benefited by advances in automation
and communication, growing leaner than ever before. Leaner
chains mean the supply chain can meet customer demand with
lower levels of inventory. At the beginning of a downturn
or recovery, a leaner chain can react much more quickly,
says IBM Distinguished Professor of Operations Management
and Information Systems Sunil Chopra.
remains convinced that technology is as essential to strategy
now as before, but fears that some students regard tech as
a relic of the e-commerce era. Technology remains the
lifeblood of competitive advantage. Its not the guys
in the dot-coms who are winning the technology race; it is
Dell and GE and Wal-Mart, Sawhney insists. Business
school graduates need to have an appreciation of how these
tools mesh with strategy.
technology impacts strategy is by helping marketers understand
their customer better and doing so in real-time through
Internet communications. Sawhney has researched what he calls
collaborative marketing, where customers, via online and other
communications devices, become an integral part of an organizations
marketing activities from idea generation through new product
development and customer support.
for marketers has been to grow closer to their customers and
through these bonds to weather downturns more effectively.
It remains a tricky proposition.
cites challenges in constructing these relationships. The
consumers short memory requires marketers to build customer
bonds on an almost daily basis, keeping their focus and understanding
their target. One critical mistake some Internet companies
made involved misinterpreting their mission and market position,
of these dot-coms wasted a ton of reach on things like Super
Bowl ads, paying a fortune for a mass audience when they should
have been finding out who their audience was, says Kozinets,
emphasizing that strategy drives marketing. If a company doesnt
have a strategy, he observes, they tend not to have market
segments, in which case they waste resources by talking to
people uninterested in buying their product.
|© Nathan Mandell
"IT consulting grew to a very large scale...Then
what happens? It turns out IT becomes a luxury good."
and strategy can assume a postmodern twist too. Professor
Edward Zajac points to his research into what he calls symbolic
management as one new way some companies have been handling
dont just market products, they market themselves,
says Zajac, defining symbolic management as an organizations
effort to influence perceptions by gestures that may or may
not be connected to actual action. Stock buyback announcements
represent one example of symbolic management that Zajac, the
James F. Beré Professor of Management and Organizations,
theres a very bad day in the stock market, you invariably
see companies announcing buybacks. Theyre sending a
message to investors that says Everythings fine,
says Zajac, noting that the firm may then not follow up on
the buyback if the market responds favorably to the announcement.
Zajac remains agnostic about symbolic management
and says its no substitute for a good product and careful
cost controls, he believes that clever firms have figured
out that they need to manage symbols as well as substance.
Ignoring the relevance of symbolic management can limit
a companys growth options, based on its inability to
convince an external constituency about the value of their
strategy, Zajac explains.
the power of a handshake
as marketings role has expanded to assume broader significance
for top performing organizations, so too has the importance
of relationship management with both internal and external
Gulati, the Michael L. Nemmers Distinguished Professor of
Technology and E-Commerce, has researched the importance of
managing relational equity and discovered that
the leading organizations are those best able to build and
leverage close relationships with customers, suppliers and
alliance partners. The value of these relationships are greater
than the sum of their parts, Gulati notes. These leaders redefine
organizational boundaries to render them more transparent
and permeable, sharing knowledge and strategy freely.
survey of 113 Fortune 500 firms presents quantifiable data
that reveals how top performers build more collaborative relationships
with customers along a variety of continuums, including information
sharing, computer communications and customer input for product
development. Gulatis findings show a sharp discrepancy
in the longevity of customer relationships between top performers
and bottom performers.
top companies are building deeper and longer relationships,
says Gulati. They also move beyond the selling of products
and services to offer solutions for customers.
the power of these relationships demands subtle negotiation
skills, as well as the ability to communicate win-win outcomes
for all involved. Egos can present challenges as can unclear
goals, says J. Jay Gerber Distinguished Professor of Dispute
Resolution and Organization Leigh Thompson. Perceptions of
fairness in a negotiation are crucial, she says, as is the
win-win discovery process among the negotiating
people have a faulty notion of win-win, Thompson notes.
We dont mean meeting a partner half-way. We conceptualize
it as finding a way for both parties to push out into mutual
discovery of new terrain.
is essential to building these successful relationships, says
Management and Organizations Professor Karen Cates. While
in the short-run some companies may view it as expedient to
assert a more powerful position, they risk damaging customer,
employee and supplier relationships, Cates says.
|© Nathan Mandell
"We haven't abolished the business cycle, all the
New Economy rhetoric notwithstanding."
with external constituents are key, but so is a firms
relationship with its internal constituents, says Professor
Scott Schaefer. Employee relations can grow explosive during
a recession, he notes. Indiscriminate firing of personnel,
while perhaps meeting immediate economic goals, can tarnish
a companys reputation in the market, which is why most
companies dont take layoffs lightly, despite the numbers
of people let go during a recession.
the costs associated with hiring and replacing people
which have been estimated to run as high as one or two times
that employees salary managers need to worry
about how their actions will affect their ability to attract
good people in the future, Schaefer says. Managers must
communicate the firms economic straits to their employees
honestly and in a way thats credible.
generally, explains Schaefer, a recession can help a firm
in unexpected ways. During down times companies are forced
to review their overall strategies to ensure their focus remains
aligned with the market. During good times, its easy
for initiatives to get the green light without much scrutiny,
advantage a recession offers managers is the chance to hone
their leadership skills. Companies such as General Electric
which enjoys a diversified business portfolio, says Besanko,
actually view recession as a way of building managerial
toughness of a market environment makes a difference in terms
of a firms ability to take the competencies developed
in their home market and extend them outside that market,
the most profound hidden advantage of the recession is the
perspective it has afforded on globalization, and the link
between politics and commerce, suggests Spulber.
there been a change in the international economy? Most definitely,
Spulber says. The really major change, one not yet fully
understood, is that for the first time in almost a century
we have near-unanimity around the world on the subject of
a market economy.
is much more than a fad; its a fundamental change in
the world economy.We see now how economic prosperity and political
freedom go hand in hand.